Rep. Glen Grell is the latest lawmaker to think he has an answer to the state’s public pension woes.

The House Republicans' point man on pension reform is offering up a pension reform plan that represents a departure from the defined contribution, or 401k-style, retirement plan for new state government and public school employees that were considered by lawmakers last spring.

Grell, R-Hampden Twp., outlined the parameters of his plan at a Capitol news conference on Monday but said some of the details are still being worked out.

• Ask current public employees to elect to have less taken out of their paychecks for retirement going forward in exchange for having their pension calculated on their five highest salary years as opposed to the current three years. Employees also would have to agree to modifications to an actuarially neutral lump-sum withdrawal upon retirement if they choose to take one.

• Assign new employees to a cash balance pension system that would guarantee them a minimum investment rate of 4 percent with employee contributions of 7 percent of their pay and employer (taxpayers) contributions of 4 percent. After 15 years of service, the employer contribution would rise to 5 percent. If interest returns exceed the retirement systems’ assumed rate of return, the employer and employee would split the difference.

• Have the state borrow as much as $9 billion to apply toward the State Employees’ Retirement System and Public School Employees’ Retirement System’s combined $45 billion in unfunded liability as a show of good faith to employees who are asked to take pension benefit concessions and a recognition of the state’s decade of underfunding the pension systems. He said the amount that would be borrowed depends on the number of current employees who elect to accept the concessions.

• Lower the projected increase in the state and school districts’ contribution rates to the two pension systems for the next four to five years before leveling off or start to decline.

• Include lawmakers and all public officials as well as state government and school employees in the pension changes.

• Would not impact the benefits of current retirees.

Grell said while taking on as much as $9 billion in debt is the lynchpin to the plan, getting all three pieces and convincing a large segment of current employees to participate are essential to offsetting most of the pension systems’ unfunded liability.

Addressing the unfunded liability of the pension systems could spare the state from any further downgrading of its bond rating by rating agencies, which impacts the cost of future borrowing.

Standing alone on the stage in the Capitol Media Center at his news conference, Grell acknowledged the plan does not have the support of labor unions although he has sought their input.

He said the Corbett administration’s objections hinge heavily on the potential of taking on $9 billion borrowing, which Grell considers as necessary to convince employees to make voluntary concessions.

While the governor’s plan contained no call for the state to take on more debt, there are some similarities, said Jay Pagni, a spokesman for the governor’s Office of Budget.

The administration’s problem with borrowing is it would increase the state’s more than $1 billion in annual debt service payments by 50 percent, he said.

Plus, “it would lock us into a significant bond payment on top of mandated pension obligations that we already have every year,” Pagni said.

Grell said he thinks having that obligation to pay back the borrowed money would prevent legislators and future governors from succumbing to the temptation to underfund the pension that got the state in this situation in the first place.

Pennsylvania State Education Association President Mike Crossey applauded Grell for moving the pension reform conversation away from switching to a defined contribution, or 401k-style, plan that would have cost taxpayers an additional $40 billion.

“This is an incredibly complicated proposal, and, right now, there are many unanswered questions about it. At the very least, Rep. Grell’s ideas present an interesting new framework for discussions about pension funding and retirement security,” Crossey said.

David Fillman, executive director of the American Federation of State, County and Municipal Employees Council 13, said he is not convinced the state needs to create yet another new tier of benefits for new employees beyond the one created by the pension reform enacted three years ago.

He also said having a sliding scale that determines the size of the state’s pension obligation bond by the percentage of employee who take concessions seems vindictive. But nonetheless, he shares Crossey’s view that pursuing an option that does not involve a defined contribution plan is a better way to go.

Grell said he thinks his plan could draw interest from employees, saying keep in mind they are taxpayers too.

“If their school district taxes are going up double to pay pension contributions, they’re going to have to pay those higher school tax rates as well,” he said.

School district employees especially “realize what happens when budgets get tight. They realize that people lose jobs, … programs get cut back and there are things that go on in school districts that they might like to try to help avoid. Being part of the solution I think that’ll get a lot of folks to take a look at it.”

“We encourage lawmakers to give pension reform the serious attention it deserves by considering the various proposals on the table and enacting a plan that is in the best interest of both state employees and taxpayers,” said Pennsylvania Chamber of Business and Industry President Gene Barr said in a statement.

Nathan Benefield, director of policy research at the conservative-leaning Commonwealth Foundation in Harrisburg, said he would prefer to see the state move to a 401k-style plan, but added Grell’s plan, if enacted, “would be a positive step for the state.”

But he, like Grell, said borrowing alone to deal with the unfunded liability is a non-starter.

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